Home / Banking / Economic Problems Affected the Banking Sector of Georgia

Economic Problems Affected the Banking Sector of Georgia

Economic problems and the depreciation of the national currency caused problems to the banking sector.

According to the statistical analysis of the National Bank, as of June 1, 2015 the volume of deposits in commercial banks has reduced as well as the amount of their assets, growth dynamics of their loan portfolios, while the number of non-performing loans and the dollarization index have increased. the NGO Society and the banks states. As of June 1, 2015, in comparison with 1 May bank assets decreased by 0.8% (GEL 200 million) and amounted to GEL 23.3 bln. Despite this, the banking sector finished May in profit in the amount of GEL 70.8 million.

At the same time, profit from currency conversion amounted to GEL 26 mln. The NGOs research has shown that the lari’s fluctuations created the unstable environment for the operation of conversion, respectively, banks have lost GEL 3 million in March. However, in April-May, a relatively stable exchange rate allowed banks to win back losses. At the same time profit from the sale of foreign currency decreased by 46% in May 2015 in comparison with May 2014. The study shows that in spite of fluctuations in foreign currency, the loan portfolio of banks is growing, which means that there is still a demand for money.

“Credit portfolio of banks as of May 1, 2015, makes GEL 14, 9 billion which is 37% more than in the same period of 2014. In the comparison with April 2015, the increase was only GEL 12, 4 million while in May 2014 growth reached 262 million compared to April of the same year. It should also be noted that the growth in the portfolio was caused by the increased lending in the Lari, which grew by 18 5 million (0, 4%), while loans in dollars fell by 0.1% (6, 1 million) “- a “Society and the banks” report says.

According to the organization, the volume of overdue loans is growing along with the loan portfolio grows which in May rose by 3%, during the year a 27%- growth was observed. “This year the growth of non-performing loans is associated with the increased payments on loans in dollars by citizens with incomes in the national currency, which declined markedly because of the devaluation of the Lari. This creates additional challenges to banks “- the document says.

As of 1 June, the amount of deposits in Georgian banks decreased by 1, 35 % or GEL 1749 million. The average interest on deposits is 5.3%, including in the national currency – 7, 2%, in foreign currency – 4, 2%. Among the foreign currency deposits, deposits in dollars account for 81, 7%, in euro – 15, 5%. According to the research, high level of dollarization in Georgia still remains a problem – for example, deposits in US dollars account for 66% of the total deposits placed in banks.

“The deterioration of the situation can be attributed to many factors, and a currency crisis is the most important of them,” – believe in the organization. It is noted that despite this, the banking sector remains one of the most developed and stable sectors of Georgia’s economy, which suffered many crises, and accordingly, the current problems will not have a significant negative impact on banks “- the study says.